02314cam a22002777 4500001000700000003000500007005001700012008004100029100002400070245018700094260006600281490004200347500001900389520096100408530006101369538007201430538003601502690011201538690009101650690007701741700002401818710004201842830007701884856003801961856003701999w10957NBER20170926183906.0170926s2004 mau||||fs|||| 000 0 eng d1 aFrankel, Jeffrey A.10aDoes Openness to Trade Make Countries More Vulnerable to Sudden Stops, Or Less? Using Gravity to Establish Causalityh[electronic resource] /cJeffrey A. Frankel, Eduardo A. Cavallo. aCambridge, Mass.bNational Bureau of Economic Researchc2004.1 aNBER working paper seriesvno. w10957 aDecember 2004.3 aOpenness to trade is one factor that has been identified as determining whether a country is prone to sudden stops in capital inflow, currency crashes, or severe recessions. Some believe that openness raises vulnerability to foreign shocks, while others believe that it makes adjustment to crises less painful. Several authors have offered empirical evidence that having a large tradable sector reduces the contraction necessary to adjust to a given cut-off in funding. This would help explain lower vulnerability to crises in Asia than in Latin America. Such studies may, however, be subject to the problem that trade is endogenous. We use the gravity instrument for trade openness, which is constructed from geographical determinants of bilateral trade. We find that openness indeed makes countries less vulnerable, both to severe sudden stops and currency crashes, and that the relationship is even stronger when correcting for the endogeneity of trade. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aF32 - Current Account Adjustment • Short-Term Capital Movements2Journal of Economic Literature class. 7aF36 - Financial Aspects of Economic Integration2Journal of Economic Literature class. 7aF41 - Open Economy Macroeconomics2Journal of Economic Literature class.1 aCavallo, Eduardo A.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w10957.4 uhttp://www.nber.org/papers/w1095741uhttp://dx.doi.org/10.3386/w10957